Growth in global demand for Islamic insurance, also known as takaful, is supporting profitability in the sector and will likely result in moderate premium increases over the next 2-3 years, according to Moody’s Investors Service.
Globally, gross takaful premiums, or contributions, increased at a compound annual rate of 9% between 2014 and 2017.
In the Gulf Cooperation Council (GCC) region, south east Asia and Africa, analysts also expect that demand will continue to be bolstered by the widening of compulsory cover in products such as motor, travel and health.
The GCC area in particular will see additional benefits from activity linked to events such as the 2020 Expo and 2022 FIFA World Cup, Moody’s said.
“We expect premiums to keep growing moderately in the next 2-3 years, and the industry will benefit from improved regulation,” said Mohammed Ali Londe, AVP-Analyst at Moody’s.
“Takaful insurers’ profitability should stabilize in 2018 and 2019 after falling in 2017 due to discounting in Gulf Cooperation Council countries and rising claims in south east Asia,” he explained.
Moody’s also expects regulatory regimes to strengthen across all takaful markets, with improvements in risk management, underwriting and reserving.
Profitability in south east Asia and GCC countries is likely to remain stable, it added, helped by adequate pricing and improved operating efficiencies, with a return on capital of 8%-10%.
In Saudi Arabia, Moody’s expects proposed increased capital requirements to drive consolidation in the takaful sector.
Meanwhile, in Africa, profitability will probably be volatile as regulations evolve, creating short-term compliance and operational hurdles.
